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Why the markets need a pullback

Talking Numbers

What can we expect this week in the markets?

The end is almost in sight for earnings season. However, there are still hundreds of companies reporting their numbers this week.

And, we’ll also get some economic data, too. We learn July’s inflation rate on Thursday and housing data on Friday.

While the S&P 500 Index fell 0.7% last week, it’s still close to its record highs of 1,709.67. For the year, the index is up 16%.

(Read: Dow poised to snap sixth-weekly win streak, down 1.5% for week)

But do the fundamentals justify its current prices?

Talking numbers on the S&P 500’s data is Erin Gibbs, Equity Chief Investment Officer for Standard & Poor's Investment Advisory Services. She is responsible for approximately $4.5 Billion in equity assets under advisory. Gibbs looks at earnings on the index to see if it’s properly valued.

“We’re still looking at about a 6.5% growth rate for the end of the year,” says Gibbs on earnings. “Assuming that analysts are a little more conservative, we get around to 8%.”

Earnings growth factors into the overall valuation of the index. Gibbs is looking for the index to target a price-to-earnings ratio within its normal trading range. And, that may affect where the S&P 500 heads next.

(Read: China's good economic news keeps getting better)

Looking at the technicals is Jeff Tomasulo, Managing Partner of Belpointe Alternative Investments. He says there’s a specific support level to watch for which, if broken through, will mean the market will drop towards its long-term trend line.

To hear Gibbs and Tomasulo on what they think is next for the S&P 500, watch the video above.

[Disclosures:

1. Gibbs is the Equity Chief Investment Officer for Standard & Poor's Investment Advisory Services LLC.

2. S&P Capital IQ Equity Research provides qualitative buy/hold/sell recommendations on equities which may differ from recommendations provided by Standard & Poor's Investment Advisory Services LLC.

3. For the securities discussed, Standard & Poor's Investment Advisory Services LLC may have provided recommendations to its clients which differ from recommendations provided in this interview.

4. S&P Capital IQ and/or one of its affiliates has performed services for and received compensation from the companies mentioned in this document during the past twelve months.

5. During the past 12 months, S&P Capital IQ and/or one of its affiliates may have performed services for, and received compensation from, other companies that may be discussed during the course of this interview.]

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